Business School 101: Blue Ocean Strategy

Introduction

• Developed by Dr. W. Chan Kim and Dr. Renée Mauborgne
• Offers framework for sustainable growth, innovation, and competitive advantage

Section 1: Blue Ocean vs Red Ocean

Key Differences

1. Market Space

   • Red Ocean: Compete within existing market; saturated, limited growth
   • Blue Ocean: Create new, uncontested market space; innovative products/services

2. Competition

   • Red Ocean: Focus on outperforming competitors; leads to price wars and diminishing margins
   • Blue Ocean: Create new demand and unique value propositions; reduce competitive pressure

3. Value Creation

   • Red Ocean: Trade-off between cost leadership and differentiation
   • Blue Ocean: Value innovation combines both differentiation and cost leadership

4. Customer Base

   • Red Ocean: Target existing customers; win them from competitors
   • Blue Ocean: Reach beyond existing demand; target non-customers

5. Growth Potential

   • Red Ocean: Limited growth; diminishing returns
   • Blue Ocean: Sustainable growth by tapping into new demand

Section 2: Principles of Blue Ocean Strategy

Six Key Principles

1. Value Innovation

   • Create new value by pursuing differentiation and low cost simultaneously
   • Example: Southwest Airlines - low-cost air travel without sacrificing service

2. Eliminate-Reduce-Raise-Create (ERRC) Grid

   • Tool to identify factors to eliminate, reduce, raise, or create
   • Example: Ikea - eliminated salespeople and created a unique store layout

3. Reconstruct Market Boundaries

   • Identify opportunities beyond existing industry boundaries
   • Example: Apple's iPhone combined features of mobile phones and computers

4. Reach Beyond Existing Demand

   • Focus on non-customers and understand their needs
   • Example: Nintendo’s Wii targeted casual gamers

5. Overcome Key Organizational Hurdles

   • Foster a culture of innovation and collaboration
   • Example: Tata Motors - encouraged innovation for low-cost car production

6. Build Execution into Strategy

   • Align resources and processes with strategic goals
   • Example: Starbucks - invested in employee training and store design

Section 3: Real World Examples

1. Netflix

   • Transitioned from DVD rental to streaming service; innovated with personalized recommendations and affordable pricing
   • Captured a large share of online streaming market

2. Tesla

   • Focused on high-performance luxury electric vehicles; identified market for environmentally friendly cars
   • Value innovation through cutting-edge technology and design

Section 4: Summary

• Blue Ocean Strategy emphasizes creating new market spaces rather than competing in existing ones
• Six principles:
  1. Value Innovation
  2. Eliminate-Reduce-Raise-Create Grid
  3. Reconstruct Market Boundaries
  4. Reach Beyond Existing Demand
  5. Overcome Key Organizational Hurdles
  6. Build Execution into Strategy

Conclusion

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